Australia has a productivity problem. It has been critical to our rising prosperity and living standards, contributing more than 80 per cent of our growth in real gross national income per capita over the past 30 years.

But labour productivity growth has fallen to a 60- year low, and the gap between Australian firms and the global frontier is widening.

Climate change, heightened global tensions, a large and growing services sector and an ageing population are now all major challenges. Heightened inflation, capacity constraints and slow wages growth across the economy are compounding these difficulties.

Little is currently known about the dynamic capabilities of Australian businesses. That’s why CEDA, with the University of Technology Sydney, has conducted this first broad survey of dynamic capabilities of Australian businesses.

Key findings:

• For business leaders, this survey shows that dynamic capabilities help to drive firm performance, resilience and decision-making under uncertainty. Firms with stronger dynamic capabilities were more innovative in the early months of COVID-19, introducing new marketing methods and overhauling organisational processes.
• All businesses need to strengthen their capabilities. Managers need to critically assess their firm’s capabilities, identify gaps and take steps to fix them.
• Australian businesses must also get better at transforming. Renewal and change are hard. But without these, firms can fall victim to structural inertia and cultural lock-in, which can ultimately be their demise.
• Diversity in leadership is critical. Firms with stronger dynamic capabilities had more diverse boards, with more directors who are female, have science, technology and engineering expertise, or have international experience.